Bitcoin’s volatility can be blamed on the widespread uncertainty that seems to hover over the crypto asset industry – investors are always left worrying about the ever-changing prices, regulations, and other associated factors that would determine the digital coin’s prospects.
Indeed, even though we’ve been witnessing a rather aggressive Bitcoin rally in the past few weeks – with the cryptocurrency hitting big figures at the beginning of 2021 – a bright Bitcoin future is not certain.
To answer the question about a crypto-enabled future, we must study two opposing, yet valid, schools of thought that seek to elucidate the status of virtual currency trading and its application as a standard unit of money across the world.
Just recently, the crypto market expanded to acquire an impressive market value of more than $1 trillion. More than two thirds of this value was attributed to Bitcoin following widespread investor endorsement that would see global powerhouses like Tesla choosing to purchase large amounts of the digital asset.
In addition, even as the oldest bank in the U.S., the Bank of New York Mellon, pledged to invest in cryptocurrency, Deutsche Bank Research strategist Jim Reid told CNBC that Bitcoin has grown to such a massive scale that it has acquired the ability to generate its own demand across diverse sectors.
Considering that most organizations stayed clear of cryptocurrency, it is becoming rather ironical that financial institutions and governments that once opposed the digital currency are increasingly joining the Bitcoin bandwagon.
Counterargument: Bitcoin Is Not the Future of Money
Although cryptocurrency may be considered a major asset class in comparison to traditional stocks and precious materials, Bitcoin has a long way to go as far as becoming a universal unit of money across the world.
Most people may be disappointed by the reality that Bitcoin and other cryptocurrencies lack the three principal properties of money: medium of exchange, unit of account and a store of value.
Medium of Exchange
For crypto assets to be recognized as money, it must be used by its holder to purchase goods and services.
In our current situation, U.S. citizens and residents buy goods and services using the dollar, the Brits spend Sterling pounds in exchange for desired stuff, and European nations use the Euro as a standard medium of exchange.
Hitherto, Bitcoin has not reached the level of being recognized as a standard medium of exchange when its owners are looking to access goods and services. This aspect was well presented in Tesla’s use of U.S. dollars in noting the price of its electric vehicles despite sanctioning Bitcoin integration in its sales operations.
Unit of Account
Money must also serve as a unit of account in enabling people to quantify wealth, value and debts. Today, there’s not one organization that has created a financial system that employs crypto for defining actual accounts.
Instead, individuals and companies are still using fiat currencies such as the U.S. dollar to measure economic value.
Store of Value
Money becomes a store of value if it will be used to purchase the same value of goods and services regardless of time – whether today or tomorrow.
We can safely conclude that Bitcoin and other cryptocurrencies fail to meet this important requirement. Bitcoin’s shortfall can be studied under the lens of its volatility. In March, 1 Bitcoin would be exchanged for about $61,700 compared to the recent price of $58,275 – that’s a 7 percent drop in mere days.
To conclude, if money loses either of the three important attributes, then the rest of the properties will fail to apply as well. Such a scenario would have played out during the 1983 Hong Kong currency crisis if the U.S. Federal Reserve had not stepped in to help.
